If a negative externality exists, __________ in order for the socially optimal output to be reached.
A)supply needs to increase
B)supply needs to decrease
C)demand needs to increase
D)b and c
E)none of the above

Question

Quizplus · Accepted Answer

When a negative externality exists, it means that the cost of producing a good or service is not fully borne by the producer or the consumer, but rather, part of the cost is imposed on third parties or society at large. To reach the socially optimal output, where the social cost is fully accounted for, the supply needs to decrease to reflect the true cost of production, including the external costs. This adjustment ensures that the quantity produced aligns more closely with the socially optimal level, where marginal social cost equals marginal social benefit.

If a Negative Externality Exists, __________ in Order for the Socially